Recently: What if You Knew All Your Co-Workers’ Salaries?

moneyhands2There are many nontraditional policies at Namasté Solar, an 11-year-old designer and installer of solar energy systems that’s based in Boulder, Colorado. But it’s not Namasté’s commitments to sustainability and democratic decision making that evoke a reaction when co-founder Blake Jones confers with fellow CEOs. What gets them talking, he says, is salary transparency.

“A lot of other CEOs are shocked,” Jones says. “They’re like, ‘Wow! I can’t believe you do that.'”

Pay transparency may be a much-discussed idea of late, but only a few, mostly small, trailblazers have adopted it. When, in January, President Obama proposed a requirement that all companies of 100 or more employees report salaries (as well as each worker’s gender, age, and job group) to the federal government, he was heading in a direction that could have dramatic consequences for every business, regardless of size. But those that already make salary data available to all of their employees say they’re glad they do, for many reasons.

Besides eliminating time-wasting salary speculation among the team, transparency can narrow the gender pay gap. That’s primarily because it encourages women to negotiate. “If you have pay transparency, [women] can see whether it’s normal or not that people negotiate,” says Andrew Chamberlain, chief economist for the job site Glassdoor.

For all its rewards, though, the adjustment to a transparent pay policy can be stressful and time-consuming. To smooth the way, follow these companies’ examples.

Talk the talk.
The biggest cost of salary openness is time: It takes a lot of it to help employees understand the formula and accept why their salaries may be less than others’. To speed the process, train managers to talk about variations in pay. That’s what they did at Namasté.

“It can definitely be tough for some managers to patiently explain the rationale behind the numbers,” says Jones, whose company has 135 employees. “Our managers need to be coached, and veteran managers are [far] better at it than newer ones. When people come from outside the company, it takes them a while to get used to it.”

Cultivate competition.
There’s always a kind of “tournament going on inside workplaces,” Chamberlain says, and transparency stimulates it. “When you make [salary] information available, people compete against it,” he says. “You see big jumps in worker productivity–on the order of 5, 6, 7 percent. And it seems to be long-lasting.”

To make the most of competition, consider changing how you schedule raises, encouraging employees to recommend their co-workers for increases, and even reducing salaries for low performers. Salaries at social analytics firm SumAll are constantly being adjusted up and down, and the 40 employees regularly agitate for and against one another’s compen­sation rates. “Your peers are your measure,” CEO Dane Atkinson says. “When they feel you’re doing well, they argue for you to make more money, and when they feel you’re doing poorly, they pull you down.”

Be formulaic.
Salary data may be freely available, but that doesn’t mean it’s understandable. To make sure everyone knows the rationale for his or her pay, develop and share a formula for grades and raises.

“We moved from ad hoc salaries decided on a case-by-case basis to being a bit more disciplined,” says Joel Gascoigne, co-founder and CEO of Buffer. The social media company, with 80-plus employees, has both internal and external salary transparency as well as other nontraditional policies. It adopted its first formula at the same time it made salaries public. With the formula known to all, “there are no discussions around ‘Is Mike earning this?'” Gascoigne says. “Politics have been avoided.”

Things to ask before going transparent

Does your company have a shared culture? At social media firm SumAll, openness about pay fuels an ongoing discussion about priorities and promotions. “No one ever gets super disgruntled, because if they feel bad, they just say so,” says CEO Dane Atkinson. At Namasté Solar, CEO Blake Jones says, “extreme transparency is one of our company’s core values and is a critical element to our company culture. We can’t afford to have harmful hierarchies that result from who’s in the know and who isn’t.”
How old are your workers? Millennials share everything, even salary information, writes compensation expert Howard Risher in a 2014 blog post, “Like It or Not, Pay Transparency Is Coming (so Better Get Ready).” If you have young workers, Risher argues, “pay confidentiality will be impossible to maintain,” even if you want to.
How much are you ready to share? Are you prepared to tell your employees how much more you make than they do? “It would be hard in companies where the CEO makes 300 times what the lowest employee makes,” says Atkinson.

From the May 2016 issue of Inc. magazine.

Read more of my writing on business and personal finance.

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